As many world economies continue to stagnate in today’s weak global economy. Investors are looking to broaden their portfolio horizons and gold is one investment that is popular.
There are a number of reasons why. One major reason would be poor stock performance in the wake of the last recession. The massive stock market dip in 2008-09 wiped out all returns investors earned over the last ten years. Gold is also used to hedge other economic risks like inflation and weak currency. With public debt soaring across western economies, gold has become a popular refuge for investors.
Price Speculation or Crisis Prevention?
Before I get into the potential ways to invest in gold, you really need to decide why you want to buy into the gold market; is it for price speculation or crisis preparation? How you answer this one question will greatly impact the way you want to invest.
Let’s say that Armageddon has occurred and you are now living in post-apocalyptic US. What becomes of all that stock you owned? Are the companies even around? Is there a stock market to trade and get your money back? Is any of it still worth anything?
This is a big concern for many people. Stocks are just a piece of paper that instantly becomes meaningless should the global economy get knocked back a few centuries thanks to a war, economic distress or national disaster.
Gold, on the other hand, has been traded for thousands of years. You can be sure that if you ever live in a time where Mad Max needs to patrol the California highways, gold is going to have value, but stock won’t. Gold gives people an opportunity to invest, but also to hold a tangible asset that can be sold to anyone, anywhere if the need arises. If you want to hedge against future doomsday starvation, then gold is a great investment to physically hold in your hand.
Now let’s say that you think doomsday is unlikely. If you fit this description, physically holding onto gold could actually be risky, burdensome and costly. There are ways to invest in gold and take advantage of prices without ever owning an ounce of actual gold.
Buy Physical Gold and Stash It Yourself
If you want to invest in gold, all you need to do is go buy it and stash it. There are plenty of places that allow you to physically buy and sell gold coins and bullion. All you need is to go to the market and buy some. Getting your hands on gold is usually the easy part. It’s finding a safe place for your gold that might keep you up at night.
The problem with holding gold in your house is that it can be stolen or lost in a natural disaster like a flood. Even a minimal precaution, like buying a safe, creates a cost of investment that hurts your returns. You can purchase insurance to fully avoid theft or loss, but again, it adds to the costs and decreases the returns of your investment. Still, if you are expecting the end of the world, you probably shouldn’t bother with any of the alternative gold buying methods.
Buy Physical Gold and Outsource Storage
One potential alternative to burying your gold in treasure chests in your backyard would be working through a gold storage company like Bullion Vault. Storage companies house your physical gold in a secure location. This type of service comes with fees for security and insurance, but you get to buy physical gold and house it in a physical location that is safer than your bed mattress. Storage companies often trade gold as well, providing you easy access to the gold market.
Buy Shares in a Gold ETF
We are now getting into methods that are far under-hedged against the world’s first zombie apocalypse. However, if you are merely looking to take advantage of price speculation while avoiding the hassles of tending to physical gold, the gold ETFs are a potential option.
A gold ETF is a company that trades in gold contract derivatives that are meant to simulate actual market price for gold. The company is publicly traded making it easy for you to buy and sell ownership of the company. However, while these investments are similar to stocks, returns are taxed at the higher rates for collector capital gains.
Buy Stock in Gold Companies
Why bother with gold when gold companies are doing all the production and selling? Many gold mining/exploration companies are publicly traded. They hold inventories and mines all full of gold to be sold at market prices. Thus, gold companies tend to rise and fall with the prices of their commodity. Purchasing stock in a gold company is no different than any other stock on the market. You can even buy into a gold mutual fund to diversify holdings across gold companies.
As you can see, the way you invest in gold is much more complicated than the how to invest.